Black Economic Empowerment Blog

BEE commissioner

May 03, 2019

There is a genuine concern that the commissioner's issue with trusts will end up at SANAS. Not that that in itself should be a problem. SANAS is required to be cognisant of opinions but not waver from the prescripts of the BEE codes. I cannot see SANAS sending out a notice saying that broad-based trusts will no longer be awarded ownership points. What I can see though is that Catastrophes and his ilk will provide non-conformances to verification agencies that have awarded ownership points for broad-based trusts. As I wrote in a previous post

Catastrophes is reportedly a major problem. He will also use BEE Commissioner opinions as binding – even though they are not supported by any piece of legislation. On top of this he uses a type of retrospective legislating where he will say to a verification agency that they awarded points to a client that may have done something 12 months prior to the opinions that he regards as binding. The Commissioner may write something in June and the client’s verification period ends three months before that, which means that they have done everything by the book that existed at the time. There is no way that they would have known at that time that this opinion was coming. Catastrophes will say that points should not be awarded. It comes down to policy uncertainty. No one knows whether their BEE processes will work or not – even though the codes may permit something.

This puts verification agencies in a very difficult position. If they don't award the points there will be a major kickback from their larger clients, the smaller companies will probably just have to suck it up. If they do award the points they may find that they are temporarily suspended by SANAS. If we are lucky under these circumstances then certificates will have to be withdrawn. I expect that if this happens there will either be some political lobbying and SANAS and Catastrophes will be brought into line.

I have received one comment about SANAS' arbitrariness. Please send me more stories. I assure you that your comment will remain anonymous, I'll go so far as to send the post back to you before I post it to make sure that you are comfortable that SANAS will never know it has anything to do with you or any of your clients.

Don't forget to vote. And let's keep malema at the bar at the Inanda Club where he can do the least amount of damage to the country.

April 29, 2019

It certainly appears so. This is a strange story because it seems that only Business Day published the story. And as usual they published behind their paywall so you can't see it. I do have a copy though and I will lift a paragraph or two for your benefit.

The Black Economic Empowerment Commission, which was set up in the department of trade & industry in 2017, has written to dozens of companies informing them of the need to rectify their ownership structure and undergo reverification of their BEE status or face investigation for fronting.

This is barely a fraction of the companies that will be affected by this pronouncement. An email sent out by Sanjay Kassen -head of ENSafrica's B-BBEE practice group noted

To simply state that the vast majority of broad-based B-BBEE trusts are not compliant with the law and constitute fronting is not something that corporate South Africa is going accept easily and such a change would also cause significant instability in a market that is already facing challenging economic conditions.The threat of criminal sanction where there has been no intention to commit fronting will not, in our view, yield the results the Department of Trade and Industry and the B-BBEE Commission seek to achieve. There needs to be a more collaborative approach between government and corporate South Africa so that there can be a clear direction going forward on broad-based Black ownership.

In other words, if you suddenly cancel the trust rule, expect litigation. It's also important to note that the commissioner cannot proclaim that this is fronting. Fronting is in fact a crime - the crime of fraud. I wrote an extensive piece about fronting a while ago. This is the essence of what needs to be proven by the NPA (who are tasked with conducting the case)

Proving fronting

Whilst fronting has been specifically created as a crime by the BEE Act, it is suggested that it is very similar to the common law crime of fraud. There are numerous definitions of the term fraud but this oneappears to be the most comprehensive.

"Fraud is the unlawful, intentional making of misrepresentation which causes actual prejudice to another or holds potential prejudice to another"

Five elements must be proved simultaneously for a conviction under fraud, these are

prejudice,

misrepresentation,

unlawfulness,

causality and

criminal intent.

Each must be proven by the state beyond a reasonable doubt.

As to when the awesome commissioner is going to to this is anyone's guess. If you watch the clip below at 4:50, the awesome tells the interviewer that she doesn't have the resources to do this. I would suggest that the resources in question are qualified personnel and money. The personnel issue is a major problem for the commission. Some of the documents that I have read that are so-called findings are ridiculously weak.

we do not consider these reported comments to carry any weight until such time as the Minister formally proposes an amendment to the Act and/or the Codes.

We remind that only Parliament can amend the Act and only the Minister may amend the Codes.

Both these procedures require formal consultation with all stakeholders and are subject to judicial review. We are not currently aware of any formal changes being proposed or tabled.

I agree with him completely. The commissioner has shot her mouth off, probably with an endorsement from some government officials, but she's on her own. The dti have said nothing about this at all, and they have posted media statements in the last few days, none of which refer to the commissioner. Even the commissioner's own website says nothing.

And now what?

There is little doubt that this is what the aNc wants. The commissioner is not doing anything that is not aNc policy. I agree with this editorial

since 2015 we have gone back to a narrower form of BEE, first by introducing punitive scoring for companies that chose not to do equity deals, and now by placing limits on broad-based trusts. It can only be expected that the goal posts will shift again in the future.

It is now up to a vigilant private sector to make sure that they don't shift those goal posts.

In the interim, the commissioner is barking up a shothole bored tree and we can safely ignore her.

March 04, 2019

This is a post that I have been wanting to write for a long time. I eventually wrote it as an article for Moneyweb, who published it on Friday and syndicated it to the Citizen (now I'm really famous). I have been mulling this over for a long time. Why is it that these BEE codes are more focused on driving a change of ownership than the broad-based emphasis they purport to advocate? It's patently obvious that everything broad-based is a falsehood. I found the answer in bolshie bob's Youth Employment Service practice note, specifically paragraph 1.13

1.13 EMEs and at least 51% Black Owned or more QSEs that participate within the Y.E.S Initiative will be verified against the Qualifying Small Enterprise Scorecard and the B-BBEE Certificate will be issued by an Accredited SANAS B-BBEE Verification Agency. This is also applicable to Sector Codes of Good Practice utilising the respective QSE Scorecard.

Here is the article. It was cleaned up a bit by a MoneyWeb editor. You'll notice that I haven't referred to bolshie bob or the awesome awdoz. Their real names are Rob Davies and Zodwa Ntuli (uppercase is an exception on this blog)

There is a very interesting clause in the practice note for the Youth Employment Service (YES) document that appears to defy any form of logic.

The YES programme is now linked to the black economic empowerment (BEE) scorecard and promises to promote companies up to two levels if they employ unemployed black youth for a period of 12 months.

The clause states that exempted micro enterprises (EMEs) or 51% black-owned qualifying small enterprises (QSEs) that wish to claim this benefit need to get measured on the full scorecard before they can benefit from the YES promotion.

For the uninitiated, an EME turns over less than R10 million per year and a QSE between R10 million and R50 million. EMEs with less than 51% black ownership are level 4 BEE contributors, 51%+ black-owned EMEs are automatically level 2, and 100% black-owned businesses are level 1 – which is the top of the BEE pile. The same levels apply to 51% black-owned and 100% black-owned QSEs. All other QSEs need to go through the rigorous, onerous and expensive process of implementing a BEE scorecard and taking the level that this process delivers.

It must be stressed that the process is costly, complicated and unlikely to deliver great results if your company has little (10% or less) or no black ownership. In my experience, a level 8 (which is the entry level to the scorecard) is pretty much what most companies would have to settle for without black ownership.

Why?

This begs the question – why would an exempt micro enterprise that is automatically a level 4 go through a verification to get to a level 7 or 8 and then embark on the YES programme to be promoted to a level 5 when they are already a level 4?

Similarly, why would a 51% black-owned QSE want to get verified in the hope that they come up with a level 3 and then go through the YES process to get to a level 1, when they are automatically a level 2?

And why would a 100% black-owned company even bother with YES?

Herein lies the conundrum. Minister of trade and industry Rob Davies has been forced to exclude smaller businesses from his YES programme even though they are the most likely employers of black youth under the YES programme.

The only logical reason he has done this is because a level 4 can get to a level 2 within a year just by employing a number of people that the business might actually need. But then this would pose a threat to black-owned level 2 and 1 businesses when it comes to state procurement.

There is a five and six preference point advantage, depending on the value of the tender, between a level 4 and a level 2 under the 2017 Preferential Procurement Policy Frameworks Act (PPPFA) regulations. This perceived threat to smaller black-owned businesses has to be mitigated against by discouraging lesser owned competitors from reaching their own BEE levels through any programme that promises a promotion of a couple of levels.

The minister himself has tacitly confirmed the onerous nature of the revised BEE scorecard by publishing a proposition that all 51%+ black-owned companies should all be promoted to level 2 irrespective of their turnover. I have a 100% black-owned client that is over the R50 million turnover threshold that could not get better than a level 5 when we took them through the whole BEE scorecard. This company would have truly appreciated the instant promotion that would have come at a fraction of the cost and hassle.

Dubious motive

These developments have me questioning the motive behind the revised BEE codes.

The department of trade and industry (dti) crowed that these codes were more broad-based than ever, stating that they will touch more of the people who need this empowerment than its predecessor.

But if this is the case then surely all companies, irrespective of ownership levels, should be involved in the process? The more companies that hire black people, train them and buy from black-owned businesses and support the black poor, the greater the impact on the economy and society in general.

Yet 51% black-owned companies that turn over less than R50 million don’t have to contribute to any of this because they aren’t measured on it.

I think the reasons behind this are simple, and I must confess that I have been unduly influenced by Institute of Race Relations CEO Dr Frans Cronje’s arguments about the national democratic revolution.

Cronje argues that the National Democratic Revolution (NDR) led by the ANC strives to rid South Africa of all the vestiges of its colonial past. Part of this process would see 51% of the entire economy in black hands. The reward for those companies reaching 51% would be that they may never have to implement a BEE scorecard at all. Everyone would be a level two or higher. And the need to support black-owned businesses and charities would disappear because all businesses would be black-owned.

Punitive

To someone like Davies, a member of the South African Communist Party, this is the purest and cleanest form of transformation.

But it is a very lofty ideal that is unlikely to be achieved in a free market economy. Those companies that do not wish to adhere to this ownership target will be forced to implement the complex BEE scorecard.

This is simply a punitive alternative. Its punitiveness is enhanced when you consider that the targets for elements like skills development, procurement and enterprise/supplier development are not only complex but extremely costly. It attempts to force smaller businesses to get to the 51% black ownership level in the quickest possible way. This pressure has resulted in many smaller white-owned businesses moving to 51% ownership through elaborate empowerment schemes that irritate BEE Commissioner Zodwa Ntuli because she is powerless to curtail them.

Once this concept is understood it becomes quite clear that the codes are less concerned about broad-based transformation and more concerned about giving black-owned businesses a massive competitive advantage over their lesser owned competitors, specifically in procurement that is subject to the PPPFA. To ensure that this advantage is maintained Davies has set up a series of codes that render it almost impossible to meet those levels when a company has to implement the BEE scorecard.

The exception that should be the rule

What is interesting though is that there is one sector code that is never expected to achieve 51% black ownership – the Financial Sector BEE Code (FSC).

This is because of listed shareholding and the requirement of the Banks Act that any shareholder with more than a 15% stake in a bank must meet certain liquidity requirements in the event that the bank requires the shareholder to bail it out.

The FSC is the only BEE code that focuses on the transformation of the entire sector by encouraging those companies to embark a wide range of initiatives that reach the largest amount of people.

I would argue that it is truly a broad-based code.

As for the other codes – they are a smokescreen and if they actually achieve any form of transformation in the future it will be an unintended consequence.

The transformation of South Africa will not come about as a result of those codes. Corporate South Africa needs to prepare to shoulder the blame from this fallout as it has for the government’s failures in the last two decades.

October 01, 2018

Is it correct to refer to the BEE Commissioner by her first name backwards? Probably not, even though it has a lovely ring.

Our great transformation fronting crusader held a press conference last week. Please reader, take this post from whence it comes. I make no bones about the fact that the fundamental basis of the revised codes is wrong. These codes are not about transformation they serve two purposes

They are punitive. It's retribution. They are devoid of business sense, rendering them unimplementable unless dramatic plans are made (and I know all those plans)

They are designed primarily to give black businesses an absolute advantage over their "untransformed" competitors. This is aimed primarily at state procurement. You can tell this because more tenders are insisting on bidders with very high levels. I suspect this will be challenged at some stage

Broad-based black economic empowerment in South Africa is moving in the right direction, but too slowly. That’s the word from Zodwa Ntuli, acting commissioner of the Broad-Based Black Economic Empowerment Commission (B-BBEE Commission), who adds the commission is confident that the pace of broad-based black economic empowerment in South Africa will soon accelerate.

The article is mostly about fronting, not that that should come as a surprise - the commission was established for this sole purpose. There is a statement which adequately demonstrates how absolutely devoid of reality the Commissioner and the dti are

“If we implement B-BBEE the way it is intended, we’ll be able to create more jobs and integrate more graduates into the economy,” Ntuli says.

Let's look at these statements individually.

Transformation is happening but slowly.

I found another article where she said she understand that these codes were new. Even so this is a problem. The last codes were removed because the scores got too high too quickly. A study was conducted in a similar manner as zuma's (still lowercase, and to show my sheer disgust I have decided to also use a smaller font for this infantile moron's name) "intelligence report" on Pravin and Jonas. The dti had proof that transformation was not taking place, they conducted a study - which also showed that black businesses were being charged R35k for a BEE certificate. That report has never been made public and never will.

The result are the new codes. Ridiculously hard to implement - so hard in fact that bolshie bob has suggested that all black businesses should be exempt from implementing them, irrespective of turnover. Of course progress is going to be slow, this is exacerbated by the paucity of verification agencies and SANAS' ridiculous processes. In fact I'm surprised that it's done as well as it has.

Correct implementation will create more jobs and integrate more graduates into the economy

At best this comment is myopic. At worst it's complete delusion. When you consider that the cost burden on those companies who are left to pick up the pieces of the transformation of the economy, is so high, there is no space to employ more people. Throw in the employment legislation and you get a lack of will to employ anyone at all. Don't forget that we are in a technical recession as well. There's no money for any of this.

The other issue that is not being spoken about is what contribution are those black-owned businesses that are exempt from BEE making toward this process? This is an unknown because they never get verified.

The Commissioner is not giving us a proper picture here. But she doesn't need to because the bubble she lives in doesn't require her to.

September 04, 2018

The Daily Maverick is becoming the most valuable source of fine journalism in this country. There is nothing that comes close to it. By the way they are looking for financial support, if you are so inclined you can read more about this here.

Back to the Maverick. Dirk de Vos wrote a fantastic article over the weekend. I'm not a Marxist fan nor that familiar with his theories, but I do know that that inept commie bolshie bob is a massive officianado. de Vos sets up his argument thus

In general, socialists continue to favour top-down direct interventions by the state preferably supported by “evidence based” research. When decision-making follows a process of identifying a problem with the objective of solving it by reviewing evidence and evaluating options, what we mostly get instead is some predetermined solution with evidence selected to favour the pre-selected solution. That type of policy making process is faulty because we cannot know the full ambit of what the problem is all about or that a whole number of factors will change once the policy is known. Goodhart’s Law shows the dynamics at play: Individuals who are aware of a system of rewards and punishments will optimise their actions within this system to achieve their own best outcome.

In other words policy makers come up with a solution to a problem without spending much time figuring out whether they actually know how to solve that problem. de Vos turns his attention to black economic empowerment and its raison d'etre

A good example of a failing policy is Broad-Based Black Empowerment (BEE) legislation and its regulations. The problem of lack of participation of black people in the formal economy and racial inequality is the problem to solve.

And in one sentence he sums up the fuck up that is best described as bob's folly

What we get is a a complex scheme of BEE regulation and arcane rules.

He could stop there, the points is made, but he's far too an analytical journalist.

The only interesting thing about BEE regulation is about they reveal about what the drafters of the rules think private firms work. Well, they don’t work in the way the BEE codes suggest they do. They work in all sorts of different ways. Still, the BEE regulations provide a system of rewards and punishments. They are also thoroughly gamed: they get manipulated by a range of actors from failing white-owned companies, specialist BEE advisers (I'm one you know - in the business of making white people look black) , funders, crony capitalists and those with a talent for manipulating state procurement budgets.

I think he must have been reading this blog. All this bullshit about voting rights and board meetings and the like - these are done by large companies. Since when does the average smallish to large business actually sit down and conduct a board meeting? bolshie bob obviously knows the answer. I once heard that idiot being interviewed on the radio and telling all those who care to hear his deluded voice that he will insist that CEOs start getting involved in the operations of small black businesses. Huh? - what would a CEO or even a high end employee be able to tell a small business about running their business. It was Anglo, in their submission of comments on the revised codes who asked the very pertinent question. What do we know about running a supplier's business? We are miners - we mine shit and then send it off. But we could start working on companies upstream - we could advise them on the best ways to manage the raw materials we produce. No! says bolshie bob. It's all about suppliers. What fucking drivel. Back to de Vos

Sadly, the response to the unsatisfactory outcome is to swap out some of the original rules, sub-rules and sub-sub rules with a whole raft of new rules that are equally misguided and arguably worse because they are combined with additional rules addressing issues of enforcement.

And so we bring in the awesome awdoz and SANAS. SANAS is so concerned about process and paperwork that if has failed to take into account that all companies are doing is producing documentation to support stuff. The actual benefit that is being derived is not measured. de Vos absolutely hits it here.

Black empowerment won’t be advanced by better enforcement of BEE regulations. The whole scheme of BEE is wrong-headed.

And he correctly concludes with

Of course, the original problem, namely the exclusion of the black majority and inequality has not gone away and, in some respects, the original problem has got worse.

I can only hope that Cyril is reading this. I have lamented often on this blog as to why have they made the codes so difficult to understand and even harder to measure. I think I know one of the underlying reasons and this has to do with lobby groups like the broke black business council - who are now returning to BUSA (apparently Cyril wants business to speak with one voice). I suspect that these lobby groups are attempting to use apartheid-style policy making where you make a certain class of people adhere to "arcane" rules and exempt others - thereby making it easier for that exempt class to gain access to the lucrative government business (a broke government I need to stress). It's all in the name of trunceformaysheeyin.

April 10, 2018

The scene – a room in a prime office in Meintjies Street Pretoria. A nondescript bearded man in a Mandela shirt is reading the news online whilst he fondles his made-to-scale replica of Marx’s gravestone.

Man (muttering) – who the hell is Alan Hirsch anyway? What does he mean the president needs to bear in mind that “more certainty is needed about policies on mining, land and black economic empowerment to encourage new investment.” There’s plenty of certainty, we have conducted empirical research – there is absolute certainty that the white monopolistic capital will fall and the economy will be nationali…………

The phone rings

Man – Davies.

Secretary – Minister, I have Twusi Vala on the line for you.

Twusi – hello is that bolshie bob, I mean minister davies?

Bolshie bob, emphasising the uppercase – it’s Minister Davies to you Mr Vala (under his breath – if I ever get my hands on that blogger who gave me that name, I’ll……..)

Twusi – listen minister I have a problem. I own 100% of my business. I was born in Hammanskraal and I employ skilled white people and foreigners and I can’t get a BEE certificate because my turnover is over R50m. My clients don’t want to know me. I’m non-compliant.

Bolshie bob – you know that you could implement all the other elements in the scorecard and get a good score – your ownership and management etc look good.

Twusi – listen minister, I didn’t join the struggle to be poor. Those elements are just too hard to implement. They cost too much money and take much time. Anyway how I am supposed to train black people if I only employ whites and foreigners?

Bolshie bob – our intention was always to favour you but only up to a poi……………………

Twusi – I don’t care. This is not fair – fix it otherwise I will raise this at the highest levels of government, I mean the ANC

The man returns to the article he was reading.

Bolshie bob – doesn’t this Alan Hirsch know that the Chinese are breaking down the doors to invest here – what policy uncertainty is this?

The phone rings again

Bolshie bob – Davies.

Secretary – Minister, I have Rivian Veddy on the line from Durban.

Bolshie bob – Rivian, so good to speak to you again

Veddy – cut out the small talk comrade minister. I didn’t join the struggle to be poor. I’ve been subsidising the rural house of zoomer for years. All I want in exchange is all the lucrative contracts in KZN. This fucking Nene is now putting the brakes on my supply chain connections. I need a BEE certificate. I turnover close to a billion (that SARS knows about). How the hell am I going to get that level 1 that I faked, I mean declared up until now. Now it’s about checking financials and shit like that. Have you seen how your revised codes have marginalised Indians? I have a family to support and they are worth shit on your new scorecard. The monarch from the rural house of zoomer is now demanding more cash and I can’t get this out of the state contracts that I am entitled to. Get me a certificate now or I’ll take it up with the highest echelons in government, I mean the ANC.

Tendai – naturalised at great expense minister. There isn’t a single verification agency that will recognise me as black now – in the past it was an affidavit. Now I go for a verification and they tell me I’m white. White!! Me!! – the closest thing I ever came to white was when I took that farm in Mazoe. Now that bob, is he a relation of yours – what with you having the same first name, has been booted out of government in Zim I need to make my fortune here. This is unacceptable. Malusi does not come cheap and I’m still white!!!

Rattled the bearded man scrolls through his rolodex and calls his secretary.

Bolshie bob – please get the awesome awdoz on the phone.

Secretary – I think you mean the Acting BEE Commissioner, Minister

Boshie bob – that blogger again! if I ever get my red claws on him. Yes her – I wish to meet the Acting BEE Commissioner urgently.

Five minutes later a knock is heard on the door.

Bolshie bob – come in.

Awesome awdoz – Minister, you called for me.

Bolshie bob – yes Commissioner. We have a problem here. I have just taken three phone calls in five minute, black business is revolting because they can no longer comply with the BEE codes because they are too hard or too complicated……..

Bolshie bob – Exactly. When we put these revised codes in place we designed them to make it almost impossible for white companies to comply so that we could give black business a hand up. I never expected that these black businesses would get so much business and then turn over more than R50m. That wasn’t the plan, they aren’t supposed to be emulating these white monopolistic capitalists.

Awesome awdoz – these white businesses are devious. Do you know that they have found a way to get around the 51% ownership rule using the modified flow through principle. Try as I might to discourage this behaviour they have carried on regardless.

Bolshie bob – have you seen that some of these companies are doing better under the new codes than they did under the old codes. This is an untenable situation – we need to punish them more. Do you have any ideas

Awesome awdoz – we must get rid of the modified flow through principle resulting in instant promotion to a level 2 immediately. But we can't leave it at that.

Bolshie bob – what else did you have in mind?

Awesome awdoz – let’s just promote large black businesses that turnover more than R50m to a level 2 or 1 so that you can appease your constituents.

Bolshie bob – awesome idea awdoz, I mean Commissioner (if I get my hands on that blogger). But let’s not make it too easy for the white monopoly capitalists to get to that 51% black ownership level through some nefarious scheme.

Awesome awdoz – we could remove the modified flow through principle and insist that large companies undergo an ownership verification. There’ll be no modified flow through principle then.

Boshie bob – exactly. But why should we stop there? I see the president has launched the Youth Employment Service. Let’s bring that into the scorecard. Hell, whilst we are at it I think we should also get white business to fund tertiary education. We need to make it a little costly so that they rapidly become financially unviable. Do you see it Commissioner – we’ll crush white businesses with paperwork and expense.

Awesome awdoz (pondering) – I’ve got an idea. How about we split up the skills development spend into two sections. Half to be spent on black staff and the rest on bursaries.

Bolshie bob – awesome plan aw… I mean Commissioner. Maybe we should sweeten the deal a little. Not split it halfway – perhaps 3.5% on black people and 2.5% on bursaries. Do you see the brilliance in your plan?

Bolshie bob does not wait for an answer

Bolshie bob – the 3.5% of payroll figure can be made up of internal spend and salaries. The bursaries are a raw cost – straight off the bottom line. I’ve heard that this will cost Standard Bank about R400m a year. They’ll have to raise their bank charges to make up this shortfall. We’ll create a black bank that doesn’t need to worry about these expenses that will undercut the large institutions. We will be rid of white monopoly capital in a short time.

Awesome awdoz – splendid idea, those concepts had been bobbing in my mind for a while. You’ve banged the nail on the head there Minister. But what about the Youth Employment Service.

Bolshie bob – yes, the YES. Hmmm – those white monopoly capitalists have been very reluctant to hire the black youth, that’s why our universities are full of disgruntled students. Can we not tie the YES into this in some way?

Awesome awdoz – how about this for an idea? We incentivise the white monopoly capitalists to embrace certain YES targets and they might be promoted a level. They’ll never get to the levels that black businesses are automatically promoted to anyway – I say let’s leave them to employ the youth and black business can continue doing business.

Bolshie bob – I like that idea. But we can’t make it that easy. We need to put in a few punitive caveats………….

Awesome awdoz (jumping off the couch) – they can only be promoted if they get all the points for the bursaries!!!!

Bolshie bob – by Stalin, you’ve got it. And the promotion to an extra level will be very attractive to 51% black-owned businesses too should they ever want to get to a level one. We'll be seen as very fair and reasonable.

Awesome awdoz – thank you minister I’ll get onto drawing up the amendments to the BEE codes. I suppose under Cyril’s government we’ll have to send them out for comment.

Bolshie bob – I suspect that we’ll have to read and consider the comments too. Sometimes I miss the last president. Now if I could just get my hands on that blogger – I’d send him off to Siberia for a winter holiday……

The curtains come down to no applause – the play started four hours late and the audience had long gone home before the performance started.

February 27, 2018

What to do? My last post which was published on Biznews this morning. In this article I reverted back to type and poured out my usual anti-davies vitriol, all of which hoped that Rob Davies (uppercase because of search engines) would have declined the post of minster of trade and industry. This was based on his declining a position on the ANC's NEC's in December. But there was wishful thinking here. I have made no secret of the fact that I think he was useless at the job. His policies are not designed to build an inclusive economy - they were designed to redistribute, not to build. I was initially very optimistic about him. Here's the post I wrote when he was appointed minister

With the Zumocracy (hopefully not a zoomocracy) comes a new cabinet and new minister of trade and industry. A notice from the Presidency's website contains the list of new ministers and their deputies. The one we BEE-types are most concerned about is the new minister and his deputies.

Rob my man - you have a hell of a job on your hands. I am only aware of the mess that is BEE, but I am almost willing to bet that the rest of the department is in a similar state. I was sent an SMS on Thursday informing me that the outgoing (and apparently pissed-off) minister had gazetted the construction sector charter under section 9. The sender remarked that said (now ex) minister was trying to push a series of things through to make his successor's life a misery.

I gave our bolshie a go. But it became very clear in a very short time that he was out of his league. There was the business registration proposal that said every business, from the broom seller through to the major conglomerate, had to register with the local municipality and acquire a licence (something along these lines). That seems to have fallen by the wayside, but it's one of many hamfisted programmes that he and his ministry launched in a half-baked fashion.

Yet he is still the minister. The optimist in me wants to think that everything he did was under the aegis of the wannabe fascist zuma and that we might see a change in his myopia. Perhaps this quote is an indication of a more realistic approach towards the empowerment process

Trade and Industry Minister Rob Davies said equity equivalents was a facility available under the Broad-based Black Economic Empowerment (B-BBEE) Act, and they could apply.

“We are not unrealistic about what we expect in terms of the B-BBEE scorecards. We want to see a progression and incremental progress.

“We are not going to be asking for something ridiculous and the moon,” he said on the sidelines of the official launch of Isuzu Motors South Africa in Port Elizabeth last week.

The underlined quote is important. As I wrote last week - how are you going to see an improvement if you won't allow companies to get on the scorecard in the first place? He's right here - the revised codes were implemented because people like me found ways to get around them and scores were fantastic. bolshie took one look at this and under very one-sided advice concluded that transformation is lagging behind. What do you do? You do exactly what Brigadier Jakes Swart did on Christmas day 1986, you force transformation on the people. This is what the revised codes were about - they were an attempt to get companies to make a better plan at transforming. The idea is noble, even if the targets were completely off the mark. The problem lay in the fact that the SOEs and the larger corporates were not going to tolerate a drop in score because it impacts (in the case of the private sector) on their BEE score. I can understand why the bee commissioner (awesome awdoz) is getting pissed off with bigger companies hitting ridiculously high scores at the outset - great score but where's the change?

This is a risk we face here - if we shoot out the lights with these codes they are just going to change them again and make them even harder. This is a strategy that a communist understands well.

Back to bolshie - I'm hoping I'm right. I'm hoping that his quote above is an indication of his long term attitude and strategy. If I am then his name will change on this blog.

December 05, 2017

The committees (Parliament’s Standing Committee on Finance and the Portfolio on Trade and Industry) recommend that the industry be compelled to provide the necessary information about their transformation and BEE compliance to the FSC Council, the newly-established BEE Commission and any other relevant state structure.

In cracking the whip, the committee has also recommended sanctions be imposed for non-compliance to BEE under the Financial Sector Charter and the BEE Generic Codes. Transformation and BEE compliance is a choice for companies and widely viewed as the right thing to do and there are no punitive measures for non-compliance.

The BEE Commission is expected to develop a system of fines for non-compliance and present a policy on this by June 2018.

As if doing business in this country wasn't hard enough. I find this type of article just ridiculous and disturbing. This is not to detract from the journalist (Ray Mahlaka). Ray is a great journalist, one whose articles carry a lot of weight. If I'm reading Ray correctly, the completely incompetent dti (read anc government) is proposing a fines' system for non-compliance of the BEE codes, specifically the FSC. It's too early to know what "non-compliance" is. But I think we can guess. This is not a bunch of legislators who understand much about an economy, non-compliance will in all likelihood be not meeting subminima under the codes. I can't imagine that they are so devoid of grounding that they may impose fines for not meeting a certain level - but then again I can.

I hope the dear reader can see what's going on here. This committee is going to find a way to make sure that the BEE codes are now mandatory. Id est

In cracking the whip, the committee has also recommended sanctions be imposed for non-compliance to BEE under the Financial Sector Charter and the BEE Generic Codes. Transformation and BEE compliance is a choice for companies and widely viewed as the right thing to do and there are no punitive measures for non-compliance.

The BEE Commission is expected to develop a system of fines for non-compliance and present a policy on this by June 2018.

Once again the awesome awdoz is involved. Not having ever met her, and I have my doubts as to whether I ever will, I can only speculate that this is what she wants. And I am willing to bet my prize piece of South African suspended soil that she is going to push it through and South African corporates will do nothing about it.

There are constitutional issues at play here. A rudimentary reading of the codes shows that the following are subject to these unworkable wonders of contemporary lawmaking

The following Entities are measurable under the Codes:

3.1.1 all Organs of State and Public Entities;

3.1.2 all Measured Entities that undertake any economic activity with all Organs of State and Public Entities;

3.1.3 any other Measured Entity that undertakes any economic activity, whether direct or indirect, with any other Measured Entity that is subject to measurement under paragraph 3.1.1 to 3.1.2 and which is seeking to establish its own B-BBEE compliance.

This is where the "right thing to do" is applicable. It's only 3.1.1 entities that are subject to the drivel that is the codes, not that they pay too much attention to it - the guptas get the business with the shittiest BEE performance. What awdoz is going to do, mkhwebane-style, is make the codes mandatory

She can't - but if we don't stop it she will. She might not get away with it legally, she might just post ugly posts on her website about how corporates are going to be investigated and in that way get it through.

Corporate South Africa, I know you won't say I didn't warn you. But I'm warning you, this is coming and once it does you'll look like a bunch of anti-transformation wmc patsies. And then it will be too late.

June 15, 2017

There are two personages that should not be spared today's vitriol. awdoz is the bee commissioner - great name when spelled backwards. wabenzi-gupta boy's name spelled backwards is enawz. awdoz and enawz are attempting to rule by decree. Let's start with enawz (you can pronounce is ehnause or eenouse if you choose). enawz has pushed through his mining charter which calls for "radical economic transformation" as well as 30% black ownership. The problem that enawz faces is that he is both not clever and he hasn't followed due process. Already we've seen the mining shares take a knock. What surprises me about enawz is whether he hadn't anticipated that there would be a market and legal kickback - we know that he expects other types of kickbacks because of his aptug relationship (I love this backwards stuff). Why is he pushing this through - the chamber is going to block it.

Let's move onto the BEE Commissioner who has all of a sudden decided that she too can rule by decree. A while ago she published another of those stunningly well-written opinion pieces about when the last BEE certificates under the old codes could be issued. You'll probably find it somewhere here. I initially ignored this because again it's an opinion and that's all. You can see what I wrote about her opinions elsewhere on this blog. In the newest opinion (PRACTICE GUIDE 02 of 2017 ) she states (as an opinion I stress)

11. ..........B-BBEE Commission in accordance with the requirements to advice on the interpretation of any provision of the Act as per section 13F(1)(a) and (3)(b) (ii) of the B-BBEE Act, has concluded that the application of the old generic codes lapsed on the inaugural year the amended codes came into effect.

I didn't want to lumber you with her logic. As usual it's not bad, but it's her opinion. We know that she's just opinionated. This has really got her goat. It seems that no one is taking her seriously. She has decided to approach the Association of B-BBEE Professionals (ABP) and told them to withdraw all certificates under the old codes issued after the 30th of April 2016 - a year after the note about financials ending before 30 April 2015. She apparently wants to go to court to get a clarification order - but has decided that before she gets to court she'll rule by decree (something her boss bolshie bob is very wont to do).

AND WHAT DID THE ABP DO?

Hulle het "fok die korporaal" gese.

We therefore could not reach a consensus as the B-BBEE Commissioner is still of the opinion that the Practice Guide 02 of 2017 stands and that Verification Professionals must withdraw these certificates from the market. Whilst the practice guide is not legally binding, the B-BBEE Commissioner expects the Verification Professionals to abide by it and withdraw these invalid certificates and where Verification Professionals do not heed this call, the B-BBEE Commissioner’s office will institute legal action as per the powers vested on her office by the B-BBEE Act as explained in the Practice Guide 02 of 2017, paragraphs 13, 14 and 15. (Against any certificate she comes across).

We understand that this is a very difficult time for our Members and the Verification Industry at large because of the potential negative impact which will have huge implication for the Verification Professionals and the industry. After discussing the application of the 18-month rule with Members we also believe that Verification Professionals did not intentionally sought to delay the implementation of the amended Codes. We therefore will be seeking a legal opinion on the matter and will advise accordingly

Something happens to public office holders, I doubt it's a uniquely South African issue, they just get a little too drunk on power. In the case of enawz, I can't be sure that he's drunk on power, I just think he's thick. He's out of his league, he's in the wrong province, he's badly advised and is now attempting a Comrades marathon on a three metre plank. We don't expect much more from him. If you don't appreciate the sheer scale of his lunacy perhaps this will clarify it for you

The Commissioner is different. She's not thick, she's nowhere out of her league and I'm not so sure that she's badly advised. I think the problem lies in the fact the no one takes her seriously. That unfortunately for her comes with the territory. When you work for an institution that is premised on arbitrariness in the form of draconian BEE codes then you are up against it.

My advice to awdoz is to talk to the people you are supposed to be working for. There are stories about her being aggressive and unpleasant and very unsympathetic. If you want a hint of the aggression take a look at the FAQ's on her website. Id est

What are the penalties for non-compliance?

The amended Act ha (sic) specified amongst other the following penalties: 10 years imprisonment for misrepresentation, 10% fine of annual revenue, 1 year imprisonment for failure to report misrepresentation and 10 year restriction from doing business with government.

Er what? What they are saying here (notice I didn't say awdoz) is that those companies that come up non-compliant are liable for 10 year in gaol. Really!!!!

awdoz, you'd get better results if you stopped behaving like an ANC-deployed cadre and started talking to your constituents. Ask enawz about this, he's in for a fucking rough time (along with that doos amuz and his buddy abagig).

May 09, 2017

You have to give it to the gung-ho BEE commissioner, she really is gung-ho. And before you take exception to the title it’s a pun on Zodwa Ntuli’s name. To a certain extent, she is a breath of fresh air – her writing is consistent, well thought out and comprehensible. This is a not a standard feature of many (or any) dti employees. Her first practice note of this year deals with the complicated issue of the modified flow through principle and promotion to a level 2 supplier as a result. I would like to think that my last post on this subject inspired her to get her pen and spellchecker into action. In effect the commissioner is saying that if you use the modified flow through principle to get to 51% black ownership then you may not benefit from the enhanced level recognition. I think there is merit to this theory. And the thought behind the note is worthy of consideration but it remains an opinion. In fact, the commissioner prefaces this note (as she does with all of them) with the following disclaimer.

This Practice Guide is issued as a non-binding guide purely to assist with the interpretation to ensure consistency in the application of the Act. Should this Practice Guide not be clearly applicable to your specific set of facts at any given time, you are advised to approach the B-BBEE Commission for a nonbinding advisory opinion, which will be more specific to your set of facts.

She informs us that this opinion is not a legal opinion, but we could expect her to use this line of argument should it get to the point where it needs to get legal

This Practice Guide does not constitute a legal document or a ruling of the B-BBEE Commission on the issue concerned. Further, although this Practice Guide is not binding on the B- BEE Commission, it does set out the approach that the B-BBEE Commission is likely to take on any matter relating to the recognition of third party procurement spend for consistency.

If you noticed the veiled threat in paragraph three (underlined) then steel yourself for the ultimate threat in paragraph 14

Therefore, the B-BBEE Commission in accordance with the requirements to advice on the interpretation of any provision of the Act as per section 13F(1)(a) and (3)(b) (ii) of the B-BBEE Act, hereby concludes that the modified flow through principle cannot be used to benefit from the enhanced recognition status reserved for 51% and 100% black owned EMEs and QSEs. Any contrary advice would be regarded as a misrepresentation of Entity B’s B-BBEE status which is an offence in terms of section 13O (1) (a) of the Act.

What she is now saying is that she really DOES HAVE the legal weight to exercise this opinion, contrary to her earlier disclaimers, and if you offer contrary advice then it’s an offence in terms of section 13O (1) (a) of the Act. In other words

(1) A person commits an offence if that person knowingly—

(a) misrepresents or attempts to misrepresent the broad-based black economic empowerment status of an enterprise

And if this isn’t threatening enough she seems to suggest in the remaining paragraphs that verification agencies MUST follow this opinion and could be fined if they don’t.

This is a problem. In the first two paragraphs she tells you that this is an opinion and has no legal backing. She then tells you that any opinion contrary to her opinion, which might also not be backed by legal opinion, is in fact contrary to her opinion and an offence in terms of the act. She’s way out of line here, she’s not a legislator and cannot arbitrarily decide what an offence in terms of the act is. This is a threat and a violation of the rule of law – something the misruling party is rather adept at. The only way we’ll ever know whether this is an offence is if she attempts to prosecute a company for this in terms of that section.

A contrary opinion based on the codes themselves as they are written

So here is a contrary opinion and it carries exactly the same amount of weight as Zodwa’s. She can attempt to prosecute me in terms at section 13)O, but this would be a gross violation of my constitutional rights.

The modified flow through principle is discussed in paragraph 3.4 of statement 100. It only applies to black voting rights and black economic interest; women, designated group etc voting rights and economic interest cannot benefit from the modified flow through principle. 3.4.3.1 one explains the levels of ownership here

Where in the chain of ownership, black people have a flow through level of participation of at least 51%, and then only once in the entire ownership structure of the measured entity, such black participation may be treated as if it were 100% black

Statement 000-5 provides for enhanced recognition for levels of black ownership. 4.3 and 5.3 deal with EMEs and QSEs respectively. It’s the same sentence repeated and says

A(n) EME/QSE which is at least 51% black owned qualifies for level two B-BBEE recognition level

This is absolutely clear – if a company is 51% black owned (take a look at my last post to get your head around this definition) and it turns over less than R50m it is a level 2 contributor. There are no qualifications in the codes, we can the safely assume that the modified flow through is an acceptable method to measure black ownership. The commissioner argues in paragraph 13, not incorrectly, that the modified flow through principle is not in keeping with the intent of the act

While we do recognise that the Codes have not explicitly provided limitations of the applications of the modified flow through principle in claiming the enhanced recognition status for black owned and controlled EMEs and QSEs, it must not be applied to circumvent the policy objectives. Therefore, it is the effect of the application of the principle that in our view limits its application to the extent that it would undermine the objectives of the Act.

She cannot, however, attempt to change the code by means of an opinion. This can only be done in terms of section 9(7) of the Act

(7) A code of good practice remains in effect until amended, replaced or repealed.

If you choose to go the modified flow through rule and follow the rules and procedures and you turnover less than R50m then you may enjoy the enhanced level recognition. There is nothing in the codes of good practice that says you can’t. We wait with bated breath for Zodwa’s first prosecution in terms of this.